Why Give a Damn:

There is a second revolution coming: investing directly in people. When it collides with crowdfunding, this will create a perfect storm….

What if you were able to invest directly in the entrepreneur instead of the company? In 2009 a few of us experimented with this crazy concept:

If you’re interested in the details, you can read about it here. While the jury is still out about how to properly structure such contracts, the key point is this. When value is being created by small group of founders, investing in their company is an indirect way of sharing in that value. Personal Investment Contracts are direct, and they align incentives between entrepreneurs and investors.

While Personal Investment is not for everyone, there has been an explosion of activity in this space in the last few years. Three new companies have emerged in the the last year to facilitate Personal Investment Contracts, one of which was backed by Google and Kleiner-Perkins:

Reid Hoffman and Ben Casnocha wrote a #1 NY Times Bestseller which argues that, in the future we will all be better off if we began thinking of ourselves as startups. They even have a fellowship program to promote the concept, and to help a few worthy individuals get themselves started up. Reid’s “PayPal Mafia” friend, Peter Thiel, has a similar program with similar goals, called the Thiel Fellowship. Even the government is getting into the spirit of personal investing with its income based repayment program for student loans.

Why this growing trend? One reason is that we have a true debt crisis still: student loans in the U.S. total over $1 Trillion, with over half either in deferral or delinquent. Add to that the $2.5 Trillion in consumer debt, and it’s hard to imagine the average employed citizen covering monthly costs, let alone starting anything entrepreneurial.

Let’s put it another way. Assume you are about to make a decision to go to a college (or graduate program) that will cost $300K all told, when you add up tuition and other expenses. If I were to suddenly give you $300K (tax free) and told you to “invest it in your future”, is that how you’d chose to spend the cash and your time for the next 2 to 4 years? How many years could you last with $300K in the bank, learning what you wanted to, traveling, having experiences, unencumbered by the need to earn a salary or follow a set curriculum?

College and graduate school are amazing and highly enriching experiences, and I’m personally glad I went. But that was 25 years ago, and this is now, and from what I see going on, I think I’d take the cash today. Instead of the traditional path, I would get my education from Skillshare, traveling the world couchsurfing the TEDx and Social Media Week circuits, and apprenticing/interning for people I admire and want to learn from.

I’m quite certain I could last 10 years without having to earn a dime. And if I did some bartending or consulting now and then, perhaps I could stretch the original $300K indefinitely. If I were entrepreneurially minded and I wanted to use the money to support myself while I built startups, I could easily have three decent swings at hitting it big before my $300K was used up. And if I ran out of money after 7 or so years were up, I would have zero regrets and be crazy employable.

So, how does this all relate to crowdfunding? Well, it turns out that just like with normal angel investing, crowdfunding is a game changer for Personal Investment Contracts. When I experimented with investing in Jon Gunn, my friend, Phil, and I each put up $125K. But what if Jon instead got just $250 from 1,000 of his fans, friends and colleagues in the movie industry? And what if those thousand backers were earning a percentage of Jon’s income in addition to being his biggest evangelists, supporters, advisors and networkers?

Kevin Kelly says it takes 1,000 true fans to reach the tipping point as an artist, and others have argued it’s the same for entrepreneurs and startups. Now, what happens when you allowing your thousand true fans to invest in you? My friends at Pave believe it will change the world:

I am Senior Vice President of Business Development at Crowdfunder, a leading investment crowdfunding portal. I’m also an angel investor, advisor and friend to many of the people and companies I mention by name. If you’re interested in learning more about my world or want to connect, please visit http://www.rafefurst.com

Author Rafe Furst

Rafe is an entrepreneur, impact investor, writer, producer and poker player. Beginning in Silicon Valley in the mid-1990s, Rafe has founded, invested in and advised dozens of startups, including Pickem Sports, Full Tilt Poker, and Crowdfunder. To date, his companies have generated over $1 Billion in revenue and $450 Million in liquidity to stakeholders.
An avid poker player, he’s won a World Series of Poker Championship, produced an award-winning instructional video, and has helped raise millions of dollars for cancer prevention and other charitable causes. Rafe is a pioneer in Quantitative Venture Capital, a nascent field based on the convergence of equity crowdfunding, complexity economics and securities law reform.